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Cheap Oil Should Fuel Economy at Last

Pump jacks in North Dakota. Layoff announcements in the energy sector have fallen back lately. Lower oil prices have proven to be more of a bane than a boon for the U.S. economy. But that is about to change. When the price of crude started dropping sharply last fall, most economists reckoned it would be a good thing . Sure, U.S. oil production had boomed due to the shale revolution, but the country was (and is) still a net importer of petroleum products. So, the thinking went, the losses from lower investment and lost jobs in the shale basins would be more than offset by the extra money that got spent on American goods and services rather than foreign oil. Things haven’t actually worked out that way. Rather, the sharp decline in drilling activity has led to a drop in investment and a weakening in the jobs market that […]

Posted On : Published By : Tom Whipple
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Oil Drilling Retreat Resumes in U.S. After Two-Week Reprieve

Drillers sidelined rigs in U.S. oil fields for the first time in three weeks, resuming the steepest and most protracted decline in drilling on record. Rigs targeting oil in the U.S. decreased by 7 to 638, Baker Hughes Inc. said on its website Friday. They rose by five last week. Natural gas rigs rose by 1 to 218 and miscellaneous rigs were unchanged at 1, bringing the total down by 6 to 857. America’s oil drillers have sidelined more than half the country’s rigs since October as U.S. crude collapsed from its mid-2014 peak to less than $45 a barrel in March. After rebounding somewhat and staying near $60 for much of the second quarter, West Texas Intermediate has dropped 17 percent from June 23. The latest rig-count decline was more of a “normal churn” when operators look to get more bang for their buck by letting go of […]

Posted On : Published By : Tom Whipple
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U.S. Oil Rig Count Falls to 638 After Two-Week Upturn

By Angela Chen The U.S. oil-rig count fell by seven to 638 this week, reversing the brief upturn of the past two weeks, according to the latest report from Baker Hughes Inc. Last week had been the second straight week of increases after 29 weeks of declines. The number of U.S. oil-drilling rigs, which is a proxy for activity in the oil industry, had fallen sharply since oil prices headed south last year. Oil prices fell nearly 60% from June 2014 to a six-year low in March, as soaring production from the U.S. and other countries overwhelmed global demand. There are about 60% fewer rigs working since a peak of 1,609 in October, though the pace of declines has slowed considerably recently. In late May, several U.S. shale-oil companies said they were ready to bring rigs back into service, setting up the first big test of their ability to […]

Posted On : Published By : Tom Whipple
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The Mighty Bakken Bites Back

Defying the trend in declining rig counts, daily volumes in the Bakken are climbing higher to the point of a record for gas production at an all-time high of 1.63 billion cubic feet per day (bcfd) in May. Well completions also increased from 102 to an early count of 114, which coincided with previous estimates by Wood Mackenzie Ltd. Jonathan Garrett, WoodMac’s principal Bakken analyst, said the most interesting data point was the fact that despite oil bring priced in the $50 per barrel range and that the rig count is down by 60 percent, production is still increasing at the Bakken in both oil and gas. Operators have achieved this with three primary approaches: drilling only in the acreage’s sweet spot—this means no testing around the perimeter; rig efficiency with high horsepower; and better completion rates, Garrett said. What’s more, during the second half of the year, operators […]

Posted On : Published By : Tom Whipple
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Comerica Drops as Oil Crash Pain Spreads to Shale Boom Bankers

Comerica Inc., a Dallas-based bank that has helped finance U.S. shale drillers, fell the most in three years after reporting Friday that it set aside more money to cover souring energy loans. Shares fell by as much as 6.8 percent, the most since October 2011, after the bank said Friday that its at-risk energy loans grew by $329 million in the second quarter, with past-due accounts up by $100 million. About 14 percent, or $578 million, of the bank’s energy portfolio has been classified as “criticized,” the bank said in a call with investors and analysts. Banks that have been critical to the U.S. shale boom have set aside more cash to cover potential losses after oil fell 51 percent in the past year to about $50 a barrel. This week, JPMorgan Chase & Co., Wells Fargo & Co., Bank of America Corp. and Citigroup Inc. all reported increased […]

Posted On : Published By : Tom Whipple
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BHP Shale Writedown Has Some Banks Asking: Where’s the Rest?

The size of BHP Billiton Ltd.’s $2.8 billion writedown for its U.S. shale assets took some banks by surprise: at least two thought it was too small. After the latest charge, Melbourne, Australia-based BHP values its U.S. onshore business at $24 billion. That’s more than 40 percent higher than what analysts at JPMorgan Chase & Co. think it is worth and over twice Citigroup Inc.’s estimate. The producer said its U.S. onshore assets would generate positive cash flow in the year to June 2016 with oil at $60 a barrel, above current prices. “Given the deteriorating conditions of the U.S. oil and gas market, we thought an impending impairment could have been larger,” analysts at JPMorgan including Lyndon Fagan wrote in a research note Wednesday. After four years of record supply, America’s natural gas output is shrinking as producers retreat from shale amid tumbling oil prices. That’s hurting investments […]

Posted On : Published By : Tom Whipple
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Sabine Oil, Lenders Put Off Fight Over Cash

During the hearing, Judge Shelley Chapman of the U.S. Bankruptcy Court in Manhattan approved of a series of routine motions designed to ensure the company’s continued operations, including paying employees and accessing bank accounts. But a long fight over about $250 million Sabine holds in cash could signal a difficult and contentious path forward for the company and its newly launched chapter 11 case. Discussions with lenders before filing for bankruptcy didn’t lead to a prearranged restructuring deal that could have made for a more streamlined trip through chapter 11, court papers show. Jonathan Henes, a lawyer for Sabine, said in court Thursday that the company cannot sustain a prolonged trip though bankruptcy. “We need to get this company out as quickly as we can,” he said. Sabine, which hasn’t sought special bankruptcy financing to fund its operations while in chapter 11, asked Judge Chapman for permission to support […]

Posted On : Published By : Tom Whipple
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How the plunging price of oil has set off a new global contest

HOUSTON — He’d spent years touting his vision that America would one day dominate one of the world’s most powerful markets. And when Harold Hamm, a pioneer in discovering vast reserves of shale oil under American soil, took the stage in front of several hundred oil luminaries, he never acknowledged that the narrative was in doubt. “For the next 50 years, we can expect to reap the benefits of the shale revolution,” Hamm said one day this spring. “It’s the biggest thing that ever happened to America.” But away from the stage, the U.S. oil industry — and Hamm — was in crisis. In the previous six months, Hamm, founder of oil giant Continental Resources, had lost $6.5 billion, more than one-third of his net worth. The industry that Hamm had helped create was facing its greatest test in a frantic race to stay profitable as rival Saudi Arabia […]

Posted On : Published By : Tom Whipple
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Savage Services Cuts Jobs in Bakken

More Oilfield Layoffs Savage Services Corp, a North Dakota railcar and logistics facility, laid off 10% of its full time employees this week. Savage is one of the largest facilities of its kind in the region and employed 118 people before this layoff. Company sources blame the layoffs on decreased demand for railcars to transport Bakken crude oil, saying that as pipeline construction has increased, the demand for railcars is the lowest it has been in three years. This is contrary to other data about the prevalence of transporting crude oil by rail. In May, the Energy Information Administration (EIA) released its latest data for crude by rail across the country that shows a 1700% increase over the last five years. It has been almost two years since Savage announced the expansion of the Bakken Petroleum Services Hub in Trenton, ND as a result of its acquisition of Ft. […]

Posted On : Published By : Tom Whipple
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Permian’s Pancaked Rock Layers Make It the U.S. Oil Patch King

In West Texas, the king of the U.S. oilfields is proving to be the safest investment for explorers. The Permian Basin added the most drilling rigs of the four major U.S. oil plays last week. Output from the region, which stretches into southeastern New Mexico, will rise by 5,000 barrels a day in August, the Energy Information Administration estimates. The Eagle Ford in south Texas, the Bakken region of North Dakota and the Niobrara of Colorado and Wyoming will all drop by at least 20,000 barrels. WPX Energy Inc. entered the region with Tuesday’s $2.35 billion deal to buy RKI Exploration & Production LLC. WPX and other explorers are turning to the Permian to drill into the large number of oil-soaked underground rock deposits stacked like pancakes. “What the Permian shows is the opportunity, and the opportunity is driven by the stacked reservoirs,” Rick Muncrief, chief executive officer at […]

Posted On : Published By : Tom Whipple